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What can small business leaders learn from the E-Myth book? How can it give a business a better chance to succeed?
In The E-Myth Revisited, Michael E. Gerber explains how focusing solely on the product—and just trying to work harder—undermines new businesses. The right approach is to view your business like a franchise—to systematize operations so that it no longer relies on you.
Read more to learn the primary principles from the E-Myth book.
The E-Myth Book’s Key Takeaways
Many people dream of quitting a job or leaving a boss they dislike and becoming their own boss by starting a business. Each year, a million new businesses are started. However, 40 percent fail within the first year and 80 percent fail within five years. Of those that last five years, more than 80 percent fail in the next five.
Underlying the high failure rate are persistent romantic notions about how businesses are born and what it takes to succeed. In the E-myth book, Gerber argues that new business owners typically fail because they focus on technical expertise rather than on developing business knowledge. They mistakenly think that knowing how to do a specific thing, such as baking pies, is all it takes to make a business work. But there’s much more to it. The important thing isn’t the commodity — what is produced — but how it’s produced. The business itself is the product.
The “E-Myth” of the book’s title refers to what Gerber calls the Entrepreneurial Myth that small businesses are founded by entrepreneurs with a great idea, capital to invest, and the business acumen to pull it off. The truth is that most small businesses are started by ill-equipped technicians.
#1: Three Roles
According to the E-myth book, a small business owner needs to cultivate and balance three roles or mindsets, all of which are necessary for running a business. The first is the technician mindset, which is where most small business owners begin and end. But this mindset by itself is insufficient. The other necessary roles are entrepreneur and manager. Here’s how they work:
- The entrepreneur role provides the vision, creativity, and energy that drive the business.
- The manager is a pragmatist who translates the vision into reality through planning and systems.
- The technician is an individualist and a doer who produces the product or service.
#2: Three Phases
The E-myth book discusses three phases — infancy, adolescence, and maturity — in which a typical small business develops. (However, many fail before reaching maturity.)
In the infancy phase, the owner wears the technician hat. The business is driven not by business needs but by what the owner wants, which is to produce something he enjoys making. The volume of work soon exceeds his capacity to get it all done. At this point, many businesses fail — the exhausted owner/technician gives up.
If the owner doesn’t give up in the infancy stage due to overwork, she moves into the adolescent phase in which she hires another technician and quickly off-loads responsibilities to that person while providing little oversight. Problems soon develop, so the owner jumps in again to do things herself. Soon the business reaches a crisis point where the owner feels she’s losing control.
Businesses can grow from infancy and adolescence to maturity as their owner learns and grows. But the most successful companies start out differently, as mature businesses already knowing where they’re going and how they’ll get there. The founders have business knowledge and an entrepreneur’s mindset.
Developing business knowledge is the crucial missing piece for most small business owners. If they don’t move out of their technician’s comfort zone to learn new skills and roles at the adolescence crisis point, business owners typically go one of three directions: they shrink the business (return to the infancy stage), go all out until they crash, or go into survival mode and barely hang on.
#3: The Franchise Movement
However, there’s a more effective and less painful route. The franchise movement, which started in the 1950s, has provided a “turn-key” model for successful business development that independent business owners can emulate.
The movement began when a milkshake machine salesman, Ray Kroc, visited a hamburger restaurant owned by two brothers named MacDonald in San Bernardino, California. At the restaurant, he found high school students producing identical burgers systematically and efficiently under the supervision of the owners. Kroc saw that this process could be replicated to continually make money and he persuaded the brothers to let him franchise it. He created McDonald’s, which became the world’s largest prepared food delivery system.
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Here's what you'll find in our full The E-Myth Revisited summary :
- Why so many new business owners fail
- Why how you produce something is more important than what you produce
- The 7 components that you as an owner must work through
